Bank blames low-interest environment and global economic disruption from COVID-19
ASB announced that its profits have decreased on last year due to the economic impact of the COVID-19 pandemic, as well as the current low-interest rate environment.
ASB's full-year results to June 2020 revealed a $967 million cash net profit after tax (NPAT) – a 20% decrease compared to last year. The figure represents ASB's underlying operating results and excludes items that introduce volatility or distortions that are not considered representative of the bank's ongoing financial performance.
“The global uncertainty due to the COVID-19 pandemic is causing significant economic and social disruption. Trade disputes and heightened political tension may further disrupt global trade and the business environment,” said Vittoria Shortt, the chief executive officer of ASB.
“We are also conscious of the impact of the physical and economic effects of climate change and the effectiveness of current and planned responses remains uncertain,” she continued.
“Our immediate and short-term focus has been on providing options to support customers with financial difficulty caused by COVID-19 while considering what support they may require in the longer term.”
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ASB revealed that its impairment losses on financial assets jumped to $306 million, reflecting its current view of the pandemic's impact. An increase in liquid assets held and low-interest-rate environment have also continued to compress margins in FY20, with a 12bps decrease in the bank's cash net interest margin on the prior year.
ASB's cost-to-income ratio hit 39.6%, which is higher than the previous year. Meanwhile, the bank's operating expenses increased by 11%, and its operating income was 1% lower than the previous year.
As COVID-19 continues to impact various sectors, ASB expects a difficult road ahead despite the quick rebound from the first lockdown.
“While New Zealand had some encouraging signs of business confidence rebuilding, and spending levels rebounding, the change of alert levels announced by the government last night demonstrated there is no room for complacency, and economic recovery is more likely to be bumpy,” Shortt said.
“We are anticipating difficult times ahead for businesses and people in the industries most impacted by COVID-19, in particular tourism, international education, and retail. For confidence to be maintained, it's more important than ever to find new solutions to minimise unemployment and help businesses reset and take action.”
